The U.S. 10-year Treasury yield surged to 4.55% on Monday, marking its highest level in over a month, following a credit rating downgrade from Moody’s Investors Service.
The agency downgraded the U.S. government’s long-term credit rating from Aaa to Aa1, citing rising debt levels and persistent political deadlock over fiscal policy.
This development has rattled markets and raised concerns about long-term borrowing costs and economic stability.
Investors responded swiftly, with a selloff in bonds pushing yields higher across the board. The 30-year Treasury yield also climbed, breaching the 5% mark for the first time since April 2025.
Moody’s Cites Fiscal Risks
Moody’s warned that without meaningful fiscal reform, the U.S. risks further deterioration in its credit profile. “The lack of a clear political consensus on how to manage debt accumulation creates uncertainty for the U.S. government’s ability to sustain its creditworthiness,” the agency noted.
This is the second major credit downgrade in U.S. history. The last time a downgrade occurred was in 2011, when Standard & Poor’s reduced the rating in the midst of a debt ceiling crisis.
Yields on Treasury bonds, which typically rise as bond prices fall, climbed sharply after the announcement. The 10-year yield is considered a benchmark for interest rates across the economy, influencing everything from mortgage rates to corporate borrowing.
“A 10-year yield at 4.55% means more expensive loans for consumers and businesses,” said Janet Lewis, Chief Economist at Delta Macro Research. “If the trend continues, it could dampen economic growth heading into the second half of 2025.”
Stocks also took a hit, with all three major U.S. indices opening lower on Monday. The S&P 500 fell 1.3%, while the Dow Jones Industrial Average lost nearly 400 points in early trading.
Adding to the volatility is the looming debate in Congress over the federal debt ceiling, with another deadline approaching in July. Lawmakers remain divided on spending cuts and tax reforms, raising fears of a repeat of previous debt standoffs that spooked global markets.
The Federal Reserve now finds itself in a tight spot. While inflation has shown signs of cooling, rising yields could have a tightening effect on the economy even without additional rate hikes.
“Bond markets are doing the Fed’s job for them,” said Mark Chen, Senior Analyst at Greenpoint Capital. “Higher yields can reduce liquidity and slow down consumer spending, which may reduce the need for aggressive Fed intervention.”
Looking Ahead
Financial analysts are urging investors to closely monitor developments on Capitol Hill and upcoming economic data releases, including next week’s inflation report and Fed meeting minutes.
If yields continue rising, the Fed may be forced to issue clearer forward guidance or even consider yield curve control measures—tools not used since the early days of the pandemic.
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